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Twenty years research … or 2 minutes with a contract manager

“Optimism is the enemy of action”, according to a recent article in The Atlantic Magazine.

The article reviews a recent book by Dr. Gabriele Oetiggen which questions the benefits of positive thinking. Based on some 20 years of study, Dr. Oetiggen concludes that ‘positive thinking’ often equates to unbridled optimism and leads to a failure to recognize or address obstacles. She therefore introduces a new concept which she calls ‘mental contrasting’.

It seems to me that any experienced contract or commercial manager will already be familiar with this particular syndrome. Indeed, any successful business already addresses the issues highlighted by Dr. Oetiggen through its organizational structure and management systems. Groups such as Sales are recruited and paid to be optimists; commercial staff in contracts, legal and finance are there to address realities. The key is of course to achieve balance – or ‘mental contrasting’.

Problems arise mostly when senior management is over-optimistic and either does not seek or chooses to ignore commercial advice. This again has been identified on a number of occasions, including work undertaken by ICCPM in partnership with IACCM, which led to a paper, ‘The Conspiracy of Optimism”. The good news is, it did not take 20 years, a book, or a new nomenclature to identify the issues!

Contracts as connectors

High-performing organizations often view contracts – and the contracting process – as a form of ‘connector’. They understand that the process draws together the views and interests of a wide variety of stakeholders. It acts as a method to reconcile disparate views, which are then reflected in the agreed terms of contract.

Connectivity does not end there, because the contract is then used as a management tool to support implementation and performance management, ensuring a series of connections throughout the lifecycle. Under this approach, contracting is a source of quality control and protects against value erosion.

While this may be true for a few leading organizations, it is not the norm. In a recent IACCM survey, members were asked to rate the capabilities of their organization against a range of key maturity indicators. More than 300 corporations are represented in the results, which show encouraging growth of executive interest – one might say awakening – in the role that contract management can play in today’s increasingly complex and volatile business environment. To some extent, that interest has been reflected in investment, though the results show this to be rather variable.

There are interesting differences between regions – for example, who would have thought that the region with the biggest growth in capability over recent years would be South and Central America, or that the region with the greatest increase in management awareness would be the Middle East. But of course, different regions have very different start points – and the findings suggest that most organizations have many opportunities for continued improvement.

A summary of the results from this survey will feature on a free webinar to be aired on October 21st and which will then be added to the IACCM library. To register, visit the event website.

Getting more from your contracts – spotting a troubled project

One challenge facing contract and project managers is how to improve their anticipation of problems. Contract administration was mostly a reactive discipline, reporting after the event. Contract management should be far more proactive, seeking to anticipate and remediate issues before they become major problems, leading to potential claims or disputes.

The question is, what are the warning signs? We recently posed that question to a group of experts within IACCM and they produced the following list – a sort of ‘top ten’, though in no particular order of priority. We plan to add to this list and increase its sophistication because it represents important knowledge and insight which may assist many in delivering greater value through improving project success – avoiding delays, budget overruns and quality defects.

Here is the list of things to watch out for, to measure or to test; please add to it, change it and comment upon it.

Actual versus plan cost or cash flow

Broken communications

Finger-pointing / blame

Lack clarity over authority / decision-making

Failure to maintain / update business case

Staffing not in accordance with plan

Disputes / disagreements over change

KPIs / measures inconsistent with goals

Poor or incomplete documentation

User dissatisfaction or disengagement

Performance-based contracts

There is growing evidence that the form and design of a contract has substantial impact on the results achieved. The evidence ranges from studies on major projects, which often suffer from use of the wrong contract model, to more focused investigation of the behavioral impact of specific terms, such as the liability or indemnity provisions.

The steady move away from traditional product-based sales into a world of solutions and services is changing the emphasis of contracts. Rather than each transaction being driven by a specific delivery or input, many agreements now relate to phased activity where ‘completion’ is rather less precise and ‘success’ can be gauged only over time and linked to an extended output or outcome.

Inevitably, this leads to a growing interest in outcome and performance based contracts. Yet according to the input to a current study, their use remains limited and contract professionals generally develop them through ‘trial and error’. There are also some important differences in perspective between the customer and supplier community. For example, suppliers have recognized the extent to which extended performance periods depend on active cooperation with their customer (and potentially their numerous sub-contractors); buyers seem slower to grasp or accept this point. Both buyers and suppliers appear slow to accept the organizational and operational implications of this enormous shift in the contracting model.

These are among the early, high-level conclusions from a survey IACCM is undertaking in partnership with Newcastle University Business School (UK) and the University of Paderborn (Germany). The research includes insights to the types of outcome based agreements most commonly used, the nature of the benefits and the challenges with their implementation and management. The overall output from this study will include not only the research results, but (over time) more detailed recommendations on different models for outcome and performance based contracts.

If you complete this survey, you will of course automatically receive a copy of the results and be invited to a webinar with the academics conducing the research. Please visit to participate.

Efficiency doesn’t end with contracts

Last week I was running a capability review with an IACCM member company. During a break, one of the attorneys said that he had been struck by the session we had just done on communications and told me a story about his former company.

He explained that this organization was a leader in its field and based its success on engineering excellence. Its technical and production teams were especially proud of the quality of their designs and their associated documentation.

However, like so many manufacturers, they faced market pressure to cut costs and therefore decided that manufacturing must move to low-cost facilities; they opened a plant in Mexico and transferred all their know-how via the manuals and instructions used in the US and Canadian facilities. Unfortunately, quality plummeted. Many were quick to blame Mexican workers – they were accused of being less skilled, having bad attitudes, being incapable of training. But someone in senior management was smart enough to understand that all that state-of-the-art documentation (of which the production engineers were so proud) was actually the problem. It was too difficult to understand – not only because it was in English, but also because it used words and was complex to follow.

Translation was not enough; the documents needed a re-think in both form and structure. They were re-designed to maximize use of graphics and to be visible at understand them. each phase of the production process, to the people who needed to understand them. Quality levels soared, soon surpassing those of the other plants.

The analogy to contracts is obvious. These increasingly complex documents contain a wide array of operational instructions, yet are rarely designed to make things simple or obvious. As a result, there is then either an expensive translation process, or quality of performance suffers.

Those engineers in my story were among the best professionals in the world, but if someone had not intervened to make their work comprehensible they might have destroyed their company. As contract and legal professionals, are we similarly putting our companies at risk?

So there are limits to IPR

Intellectual Property lies at the heart of many litigations. Negotiations over IP have boosted this topic into the top five negotiated terms and there is hardly a contract these days that does not include some sort of IP clause.

While most of us applaud the concept of IP rights and the ability of inventors and artists to gain rewards for their work, many are also concerned about the constraints this can impose on future invention and creativity, as well as the scope of what might be deemed ‘an invention’. Too often, patents and copyrights appear more as ‘get rich quick’ schemes or deliberate restraints of trade.

It may therefore come as a relief to learn that self-portraits by animals are not deemed registrable by the US Copyright Office. The latest draft of its Compendium’s third edition states that registration of “works produced by nature, animals or plants” shall be rejected, and only original works performed by human beings shall be registered.

The issue has arisen because a monkey stole a camera and proceeded to take multiple photographs, including a ‘selfie’. Some of these pictures were reproduced on the internet and went viral. Wikipedia was challenged by the camera owner, who claimed copyright.

Given the constant drive to reduce costs through labor arbitrage, this should act as a warning to anyone intending to use animals in the production of intellectual property.

The cost of failure

When business travel plans go awry, the impact is substantial. That’s according to research conducted by the Global Business Travel Association.

A delayed or cancelled flight, by far the most common issue, affects 87% of business travelers each year. And the impact is significant, causing lost hours. missed meetings, incremental costs to re-arrange … In fact, the survey suggests the average cost is $1457, plus missed work hours.

The reason I find this interesting is because disrupted travel is essentially similar to a disrupted contract. We thought we had a commitment, we planned on it being executed … and the commitment was not honored. Assessing the cost impact in this way is relatively rare. Also, as the survey points out, if travel managers understand the relative frequency of different types of disruption, they can better plan for them and reduce either the likelihood or the consequences that arise.

Essentially, this is just another example of the importance of contract managers assessing impact and monitoring overall frequency so that they can drive improvements for their business, both as a buyer and a seller.


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